Essent has advantages over its competitors because it’s unburdened by losses from pre-crisis loans, giving the company a leg up with customers over rivals, said Rob Haines, an analyst at CreditSights Inc.
Legacy Exposure
“These companies do not look nearly as favorable as a company like Essent, and it gives them an opportunity to capture market share,” Haines said. “Why in the world would you want to buy from a company that has these legacy troubled exposures.”
Essent’s insurer has a BBB+ financial strength rating at Standard & Poor’s, as does New York-based AIG’s United Guaranty. MGIC, Radian and Genworth’s mortgage guarantor all have B strength ratings, which are seven steps lower.
Raising capital in the IPO could help Essent extend its advantage over rivals, Moody’s Investors Service said in a Sept. 23 research note. Moody’s has a Baa3 financial strength rating with a positive outlook on Essent’s insurance unit.
“Our financial strength has been a reason that some customers have done business with us,” Essent said in the filing. “This competitive advantage may be mitigated if our competitors continue to improve their capital positions, profitability and financial strength ratings.”
Radian fell 1 percent today to $13.32 at 10:15 a.m. in New York trading, paring its gain this year to 118 percent. MGIC declined 1.4 percent to $7.17 and is up 170 percent since the end of 2012.
At Essent,“the growth opportunity is still there as it is with the other two, but they don’t have the legacy book,” Micenko said, referring to MGIC and Radian. “The million dollar question is what does valuation look like.”